Trading Questions You Must Answer

trading plan questionsThere is a lot of trading information that is available through a simple Google search.

You can find out about trading indicators, price patterns, price action and even background on fundamentals.

It is quite possible to piece all of this information together and come up with a strategy of how you are going to trade.

Let’s not talk about the quality of the method but let’s look at the probable evolution of how a trader goes from newbie to “trader”.

  1. Seek out information
  2. Find what most people are using i.e. the “popular” tools
  3. Look at charts with your new found knowledge
  4. Play around with a demo account
  5. Go live

No real testing has taken place and the approach is haphazard at best.  The odds are already stacked against someone looking to trade for a living and this approach virtually cements their failure.


You’ve No Clue

On a regular basis, I receive emails and charts from traders.  Most of them are using a discretionary form of trading however even discretion has certain variables that are needed to get into a trade.

Discretionary trading involves some type of analysis but a trade may or may not be executed.

Mechanical trading generally means if the variables line up according to the system, the trade is executed without exception.

These traders usually send in this information when they have suffered a few losses or that “sure winner” didn’t pan out.  They are looking for another set of eyes (or perhaps feedback on their entire approach to trading) to tell them what they should have done.

A typical conversation will go something like this:

  • ME:  “I think I can see why you took this trade but breakouts are usually a tough ride.  Why did you take this one?”
  • THEM:  “The candle looked great and it just felt right”

Digging deeper I ask what the specific plan was for this particular trade.  In addition, what was the overall trade plan they used to approach this particular setup.

To confuse them even more, I would ask how did the candle have to look to consistently take these types of trades.

The usual response is no response.


Trading Is A Business

How can you not know exactly why you decide to risk your money in a business that will, for most people, take more than it ever gives?

People will spend more time on a shopping list or designing their teams for a work sports pool than they will for a business that has the potential to change their life!

Many who come to trading have a full time job or have been successful at their own company.  Whether it was their company or they work for a large corporation, every business has a plan.

This plan does not sit in the head of the CEO.

The action of pen to paper was undertaken and everything from goals to how to generate profits is laid out.  This helps keep them focused on the proper direction for the company.

Actually, the jobs of the employees depend on the company having a clear plan.

So why do people think the business of trading is any different?

  • Is it the ease of turning on the computer and placing a trade?
  • Is it because you can do it from any place in the world with WIFI…including the beach?
  • Is it because the initial cash outlay does not have to be huge in order to start making money?
  • Is it because marketers have brainwashed people into thinking success lies in their $99 E-book?

Heck, I would think those are the reasons you would WANT a clear direction….a written plan.

Maybe there is some deep psychological issue as to why people gloss over a trading plan.  I don’t know and in fact I don’t need to know.

Neither do you.

What you do need to do is to stop acting like a non-professional business owner and get your plan written down.

Think it is hard?

  1. What constitutes conditions for a possible trade?
  2. How will you enter?
  3. Where is your stop going to go?
  4. What % of your account will you risk to see is this trade will be successful?
  5. What price will you take action after the trade is entered?  Will you exit?  Scale out?  Trail stop?

Your job now is to test this plan, document the results and go to work fine tuning it before you think of going live.

Five questions to write down.  Five questions to answer.

Don’t take another trade until you do.

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